University of New Mexico student Jeffrey Knockel claims to have revealed an encrypted list of 1,100+ keywords within China's Skype client, TOM-Skype. This list, containing words like "BBC" and phrases like "Democratic Unionist Party", are suspected to be used for monitoring TOM-Skype users.
When a TOM-Skype user sends chat messages containing "suspicious" language found within the program's periodically updated keyword list, Knockel's research indicates an alert is sent to TOM-Skype's servers containing the sender's account name, message timestamp and detected word(s).
The list was uncovered after Knockel had been monitoring suspicious communications between TOM-Skype and its Chinese servers. The collection of words was encrypted, but Knockel was able to employ some clever analytical techniques and reverse-engineering, which eventually lead to its uncovering.
The two-year long research project found only evidence of text-based chat monitoring. A similar mechanism used for voice communications was not found, although that doesn't preclude other vectors of surveillance.
According to Reporters Without Borders, numerous journalists and activists have had their Skype communications intercepted. As a result, privacy and anti-censorship advocates have chided Microsoft for not being more transparent about TOM-Skype and its dealings with China.
If you're going to do business in China, you have to play by their rules. In this case, Microsoft has ostensibly made concessions to appease Chinese authorities, granting the company access to the most populous market on Earth.
"As a Chinese company, we adhere to rules and regulations in China where we operate our businesses." TOM-Skype said in 2008.
The practice though, although possibly a demand of Chinese policy, is likely to make Western idealists cringe. However, it should be noted that Western democracies aren't necessarily above these kinds of techniques themselves.
Knockel has published the growing list of questionable keywords online. The words are in Chinese, but running them through a translator reveals a plethora of seemingly politically-focused language.